Washington Insider -- Friday

Food Retailer Shifts and Consumer Risk

Here’s a quick monitor of Washington farm and trade policy issues from DTN’s well-placed observer.

House Panel Clears EPA Funding Bill Amid Heavy Objection

Legislation to fund the Environmental Protection Agency (EPA) for Fiscal 2017 gained approval by the House Appropriations Committee June 15 on a 31-18 vote, including several provisions added to the objection of Democrats on the panel.

Democrats, led by House Appropriations Committee Ranking Member Nita Lowey, D-N.Y., and Rep. Betty McCollum, D-Minn., were unable to win support for amendments to strip out the contentious riders added to the bill to fund the Interior Department, EPA and the Forest Service.

The package carries a $32.1 billion price tag, including almost $8 billion for the EPA. Funding for EPA's Clean Power Plan (CPP), waters of the US (WOTUS) rule, Superfund financial assurances and other agency priorities would be cut under the legislation. The package would fund the agencies at a level $1 billion under the administration's request.

The bill also includes provisions that prevent the Interior Department from moving forward with an April proposal to update air pollution requirements for oil and gas operations on the Outer Continental Shelf. The amendment, authored by Reps. John Culberson, R-Texas, and Steven Palazzo, R-Miss., instructs the Dept. of Interior's Bureau of Ocean and Energy Management (BOEM) not to move forward with the proposal until it concludes, after it completes studies and public outreach, that the operations are "significantly affecting the air quality of any state."

After markup, the sole Democrat voting in favor of the legislation on the committee, Rep. Sanford Bishop, D-Ga., defended his support. "You've got to balance the health, safety and welfare of the public against the economic exigencies that are faced by the companies that have to comply that supply the jobs and income for families,” Bishop told Bloomberg BNA on the sidelines of the markup. "Many of the regulations cannot be complied with; the technology doesn't exist."

An amendment was also approved to bar the president from designating national monuments in certain counties in states across the West, as well as one county in Maine. Another amendment added over Democratic opposition was one to sponsored by Rep. Kevin Yoder, R-Kan., to ban the Interior Department from listing sage grouse and the lesser prairie chicken as threatened or endangered under the Endangered Species Act.

Philadelphia Mayor's Strategy Key for Successful Soda Tax

Philadelphia's City Council voted 13-4 Thursday to approve a 1.5 cent-per-ounce tax on sugary and diet drinks beginning in January. The measure was approved in a preliminary vote last week, so the outcome this week was widely expected.

Unlike other failed efforts in other cities around the country, Philadelphia Mayor Jim Kenney kept the focus on the benefits of the cash injection to the city's coffers.

The first year of the tax is expected to generate $91 million, which Kenney pledged to spend on public programs like universal pre-kindergarten.

In other cities where such efforts have failed, like New York, the focus was on the health issues, etc., that some have raised on consumption of sugary beverages.

Washington Insider: Food Retailer Shifts and Consumer Risk

The New York Times is reporting that prepared foods are an increasingly important part of the U.S. grocery business, “delivering fat margins at a time when sales of traditional packaged foods are lackluster. But the strategy also comes with serious risks.”

The article says that FDA has sent a warning to Whole Foods Market, “a longtime champion of fresh and healthy foods,” complaining that the company had failed to address a long list of food safety issues at its food processing plant outside of Boston and that this is the “clearest example yet” of the risks associated with prepared foods.

The Times notes that this letter is just the latest headache to afflict Whole Foods which has struggled “with slower growth.” However, prepared foods, which have almost double the profit margins of packaged foods sold on grocery shelves, have remained a bright spot at the company. However, it says the recent FDA letter “could put some of those sales in peril,” the Times says.

The story quotes Phil Lempert, an expert on grocery store operations and marketing, who told the Times that for Whole Foods to be in this predicament, “there really is no excuse. Because Wall Street has put it under such pressure to expand growth, I think Whole Foods has gotten sloppy.”

The Times says that in February, FDA inspectors spent five days at the plant and then shared their findings with Whole Foods, which responded within 15 business days, reporting that it had retrained employees to address most of the issues the agency raised. That response, however, failed to satisfy the FDA.

“We do not consider your response acceptable because you failed to provide documentation for our review…” the agency wrote in its June 8 warning letter. Whole Foods now has about two weeks to provide evidence to the FDA that the company is in compliance. Otherwise, the company might have to pay the agency to re-inspect the facility.

In its review of the situation, the Times noted that grocery retailers have long offered prepared foods like rotisserie chickens and broccoli salad. But as business has declined in the center store, companies have upped their game, adding sophisticated meals that consumers can take home or eat in the store, the article says. It reports a Food Marketing Institute and Technomic finding that “prepared foods department [are] one of the highest performers in the food business.”

The risk for grocery companies is that prepared foods receive a higher level of scrutiny from regulators than foods made and packaged by others and that “a bad inspection in one location, or reports of food illnesses, can damage an entire brand,” the Times says. It notes that shares in Whole Foods fell nearly 5% on Wednesday.

Many retailers offer prepared foods these days—and, many have had food recalls, the article says, but that “perhaps no company has been more aggressive about integrating prepared foods than Whole Foods which has long put bars and restaurants into its stores. “A new store in Hawaii will have about 200 seats for shoppers to sit and enjoy a meal and a drink,” the Times notes.

“Whole Foods is one of the pioneers in providing restaurant quality meals to consumers,” according to Joe Pawlak, managing principal at Technomic but stores like ShopRite and Safeway are opening so-called groceraunts, too. A ShopRite in Morris Plains, N.J., added a 4,000-square-foot atrium where people can enjoy a meal, the Times notes.

Supermarkets tried moving into the food preparation business in the 1990s, Pawlak said, but offered too broad a menu and ended up throwing a lot of food away. “Now what’s happened over the last five or six years, they’ve hired food service professionals who understand restaurants and how items move on a menu,” he said. “That’s taken the quality up to where I can get just as good a meal at the grocery store as I can in many sit-down restaurants — and for a lot better value.”

Still, the article says that a Yahoo News analysis of FDA’s food safety recalls in 2015 found that prepared foods accounted for more recalls than any other food category.

Consumers regularly tell pollsters that food safety is their top priority and that even firms which relentlessly advertise food “quality” attributes have to prove that their food is safe. The “recall history” of prepared food retailers makes safety a continually threatening challenge for the industry as a whole—and an even higher hurdle for prepared foods than for traditional grocery operations, Washington Insider believes.

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